Miko Huang
The South Korean equity market is difficult to put neatly into a box.
The country is home to some of the world’s best-known technology, semiconductor, automotive and industrial companies. Its businesses sit at the heart of global supply chains. It plays a vital role in the current artificial intelligence (AI) buildout. Its gross domestic product (GDP) per capita is now well ahead of Japan’s.
Yet index providers do not even agree on something as fundamental as Korea’s role in a global equity portfolio: specifically, is it a developed or an emerging market?
For FTSE Russell, the answer has been clear since 2009: South Korea is a developed market. Other index providers still classify the country as an emerging market.
That distinction matters. But so does another question that has become increasingly relevant as Korea’s largest companies have grown: how can investors gain exposure to the Korean equity market without allowing a small number of stocks to dominate the portfolio?
The FTSE South Korea RIC Capped index is designed to address that challenge.
Why country classification and benchmark design matter
Country classification can sound like a technical detail but it can materially change what investors own.
FTSE Russell’s approach to classifying equity markets has long gone beyond simply looking at an economy’s headline size and the relative wealth of countries.
Our framework considers factors including market quality, liquidity, stability, market access and, crucially, the experience of investors operating in those markets.
FTSE’s decision to solicit the input of market practitioners with technical expertise in trading, portfolio management, and custody in the index governance process contributed to the decision to move South Korea from emerging to developed market status in 2009.
Involving investors, traders and middle- and back-office professionals in the country classification decision-making process helps ensure that different benchmark user groups are represented and that important design questions are highlighted early. Markets evolve and occasionally, we consult the wider market on potential changes to our equity indices. Benchmark design matters.
Increased concentration is the flipside of Korea’s success
Answering the country classification question determines where Korea belongs within a global equity index. But how should investors capture a market that includes global tech giants such as SK Hynix and Samsung Electronics?
Recently, the success and scale of these businesses have resulted in a highly concentrated benchmark, when measured by market capitalisation.
However, concentration in the (uncapped) FTSE Korea Index is not a new phenomenon. Samsung Electronics has accounted for more than 20% of the index since the index launch. By 30 September 2026, its weight had risen to 33.22%, while SK Hynix represented another 27.31%.
This level of index concentration means that movements in just two companies can have an outsized influence on the performance and risk characteristics of the overall benchmark. Uncapped market capitalisation weights also reduce the representation of other companies and industries across the Korean equity market.
To address this challenge, in 2017 we launched the FTSE South Korea RIC Capped index. This index addresses the concentration challenge while retaining exposure to the same Korean large- and mid-cap opportunity set.
Keep the leaders. Manage the concentration.
The FTSE South Korea RIC Capped Index applies a capping methodology designed with Regulated Investment Company (RIC) concentration requirements for US-registered funds in mind.
In the index, we cap constituent weights quarterly so that no more than 20% of the index is allocated to a single constituent, while the combined weight of constituents individually representing more than 4.5% of the index does not exceed 48%.
When applied to South Korea’s equity market, the principle is straightforward: let market leaders lead but not dominate.
Following application of the capping methodology, Samsung Electronics represented 18.66% of the FTSE South Korea RIC Capped Index at 30 September 2026, compared with 33.22% in the uncapped FTSE Korea Index. SK Hynix represented 19.97%, compared with 27.31%.
Exhibit 1. Top 10 Constituents by Weight
| Company Name | Industry | FTSE South Korea RIC Capped Index | FTSE Korea Index |
|---|---|---|---|
| Samsung Electronics | Telecommunications | 18.66% | 33.22% |
| SK Hynix | Technology | 19.97% | 27.31% |
| Samsung Electronics Pfd. | Telecommunications | 2.36% | 4.20% |
| SK Square | Technology | 4.56% | 2.73% |
| Samsung Electro-Mechanics | Technology | 3.73% | 2.23% |
| KB Financial Group | Financials | 2.58% | 1.54% |
| Hyundai Motor | Consumer Discretionary | 2.08% | 1.24% |
| Shinhan Financial Group | Financials | 1.99% | 1.19% |
| Doosan Enerbility | Industrials | 1.62% | 0.97% |
| Hana Financial Group | Financials | 1.53% | 0.92% |
| Total | 59.08% | 75.54% |
Reducing the weight of the two dominant companies creates greater room for the rest of the market. As a result, the FTSE South Korea RIC Capped Index provides broader representation across industries such as financials, industrials and consumer discretionary.
Exhibit 2. FTSE South Korea RIC Capped Index demonstrates a greater industry diversification
Source: FTSE Russell; as of 30 September 2026. Past performance is not a guide to future returns. Please see the end for important legal disclosures.
| Industry | FTSE South Korea RIC Capped Index | FTSE South Korea Index |
|---|---|---|
| Utilities | ~0.4% | ~0.1% |
| Consumer Staples | ~1.3% | ~0.3% |
| Energy | ~2.3% | ~1.4% |
| Basic Materials | ~2.4% | ~1.5% |
| Health Care | ~3.5% | ~1.6% |
| Consumer Discretionary | ~8.1% | ~4.9% |
| Financials | ~12.0% | ~7.1% |
| Industrials | ~15.4% | ~9.2% |
| Telecommunications | ~21.4% | ~37.7% |
| Technology | ~33.4% | ~35.3% |
Putting a number on diversification
The benefit of capping becomes even clearer when we look beyond individual stock weights and measure diversification across the index as a whole.
A measure called “effective N” provides one way to do this. It translates constituent weights into the equivalent number of equally weighted securities. A higher Effective N indicates that index weight is distributed more broadly, while a lower number signals greater concentration.
Applying the effective N calculation to the uncapped and capped Korean equity indices is particularly revealing.
As of 30 September 2026, both the FTSE South Korea RIC Capped index and FTSE Korea index contained 142 constituents. The investment opportunity set is therefore the same, but the distribution of weight across it is markedly different. The uncapped FTSE Korea index had an Effective N of only 5.27. After applying the RIC capping methodology, the Effective N increased to 11.99, more than twice the level of the uncapped index.
In other words, capping index weights does not broaden the constituent universe but it makes better use of the breadth already there.
Exhibit 3. FTSE South Korea RIC Capped Index shows consistently higher Effective N values
Source: FTSE Russell; as of 30 September 2026. Past performance is not a guide to future returns. Please see the end for important legal disclosures.
| Year | FTSE Korea Index | FTSE South Korea RIC Capped Index |
|---|---|---|
| 2016 | ~12.5 | ~22.2 |
| 2017 | ~13.3 | ~22.6 |
| 2018 | ~9.0 | ~21.2 |
| 2019 | ~8.1 | ~19.2 |
| 2020 | ~9.3 | ~20.6 |
| 2021 | ~11.2 | ~23.3 |
| 2022 | ~9.2 | ~20.4 |
| 2023 | ~13.7 | ~20.4 |
| 2024 | ~9.0 | ~12.3 |
| 2025 | ~5.1 | ~12.0 |
Concentration can matter for returns
Capping inevitably changes the way an index participates when its largest constituents either outperform or underperform the rest of the market.
This can be clearly seen in the historical performance of Samsung Electronics and SK Hynix. Over the 10 years to 30 September 2026, SK Hynix delivered a cumulative USD return of 3,485.1%, while Samsung Electronics returned 581.7%.
Over the same period, the FTSE Korea Index returned 257.6%, compared with 232.9% for the FTSE South Korea RIC Capped Index, a cumulative difference of 24.7%
The difference in past performance illustrates the trade-off inherent in capping: when the largest stocks strongly outperform, an uncapped index can capture more of that upside. Conversely, reducing the leaders’ weights lessens the index’s dependence on the performance of those individual companies.
Exhibit 4. Samsung and SK Hynix weights have driven the difference
| Cumulative Return (%, USD) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Index | 1M | 3M | 6M | YTD | 1Y | 3Y | 5Y | 10Y |
| Samsung Electronics | 4.1 | -8.3 | 78.3 | 137.4 | 231.2 | 291.9 | 216.3 | 581.7 |
| SK Hynix | 6.9 | -23.6 | 144.3 | 189.2 | 428.9 | 1446 | 1405.1 | 3485.1 |
| FTSE South Korea RIC Capped Index | 0 | -6.5 | 63.5 | 86.5 | 132.1 | 218.4 | 127.3 | 232.9 |
| FTSE Korea Index | 2.1 | -9.5 | 65.1 | 90.9 | 140.2 | 219.9 | 131.9 | 257.6 |
| Differences * | 2.2 | -3 | 1.6 | 4.4 | 8.1 | 1.5 | 4.7 | 24.7 |
* Differences = cumulative return of the FTSE Korea Index – cumulative return of the FTSE South Korea RIC Capped index
Source: FTSE Russell; as of 30 September 2026. Past performance is not a guide to future returns. Please see the end for important legal disclosures.
Broader diversification, historically lower volatility
The diversification benefits of capping have also historically been reflected in the risk characteristics of the index.
Across the periods shown below, the FTSE South Korea RIC Capped Index recorded lower annualised volatility than the FTSE Korea Index.
The difference is particularly intuitive in the context of increasing market concentration. As Samsung Electronics, SK Hynix and the associated technology exposure became a larger part of the uncapped index, the performance of the overall benchmark became increasingly sensitive to that of a relatively small number of securities.
By redistributing some of this weight to the rest of the market, the RIC Capped approach has historically reduced that concentration and resulted in somewhat lower realised volatility.
Exhibit 5. Greater diversification has led to a lower volatility in the FTSE South Korea RIC Capped Index
| Volatility (%pa) | ||||
|---|---|---|---|---|
| Index | 1Y | *3Y | **5Y | **10Y |
| FTSE South Korea RIC Capped Index | 56.9 | 38 | 39.3 | 31.3 |
| FTSE Korea Index | 62.9 | 39.4 | 40.3 | 32.1 |
Source: FTSE Russell; as of 31 January 2024. Past performance is not a guide to future returns. Please see the end for important legal disclosures.
Conclusion: Let the leaders lead but not dominate
South Korea’s economy has boomed and its market leaders are global success stories, but their scale can also create significant concentration for index-based equity investors.
The FTSE South Korea RIC Capped index strikes a balance, retaining meaningful exposure to Korea’s largest companies while distributing weight more broadly across the market.
By considering this index, investors are not necessarily reducing exposure to Korea’s success but could be capturing more of the market behind that success.
Disclaimer
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